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fROM 

Balancing  Debits  and  Credits 
in  the  Far  East 


CHINA  —  MONGOLIA  —  MANCHURIA 
SIBERIA  —  KOREA  —  JAPAN 

As  Between  Themselves  and  Their 

CREDITORS 


FRED   A.   DOLPH 

Counsellor  to  the  Republic  of  Korea 


The  shaded  area  in  Siberia  and  China  are  the  Japanese  spheres  of  exploitation  where  Japan 

stturted  various  enterprises  of  questionable  character  with  borrowed  money 

from  Europe  and  America. 


NOTE. — Korea  and  Formosa,  tho  unshaded  on  above  map,  are  absolutely  con- 
trolled by  Japan.      North  Manchuria  and  Outer  Mongolia  are  also  being  absorbed. 


Balancing  Debits  and  Credits 
in  the  Far  East 

CHINA  —  MONGOLIA  —  MANCHURIA 
SIBERIA  —  KOREA  —  JAPAN 

As  Between  Themselves  and^Their 

CREDITORS 


BY 
FRED   A.   DOLPH 

Counsellor  to  the  Republic  of  Korea 


V-  :^^'--' 


Copyright  by 

Philip  Jaisohn  &  Co..  Inc. 

1537  Chestnut  Strebt 

Philadelphia 

U.  S.  A. 

1920 


N.  Y.  Public  LIbrar- 
A. 


f{SMi;mt.  Lit). 


BALANCING  DEBITS  AND  CREDITS  IN 
THE  FAR  EAST 

The  writer  accounts  himself  an  expert,  from  force 
of  experience,  in  the  psychology  surrounding  debt- 
ors and  creditors  and  their  relations  with  Financiers, 
called  Bankers  and  Brokers  by  the  humble  and  lowly. 
At  least  fifteen  years  of  my  life  was  spent  in  obtain- 
ing loans  and  credit  for  utilities,  albeit  must  be  admitted 
that  the  greater  part  of  the  time  was  consumed  with 
"attempts."  At  one  time  or  another  I  probably  have 
visited  the  office  of  every  Financier  of  consequence  in 
America  and  England,  and  if  necessary  could  describe 
their  offices,  particularly  their  outer  offices,  with  great 
detail,  down  to  the  last  calendar  and  desk  pad. 

My  success  or  failure  always  turned  on  whether 
the  project  met,  or  failed  to  meet,  the  requirements  of 
three  or  four  fundamental  rules,  that  the  Financier 
always  applied  as  his  "first  principles,"  until  I  have 
come  to  believe  that  the  whole  world  of  finance  and 
credit  is  controlled  by  a  few  set  rules  that  experience 
has  found  to  be  infallible. 

So.  from  the  constant  ringing  in  my  ears  of  these 
"first  principles"  for  fifteen  years,  it  is  natural  that 
I  should  apply  those  principles  to  the  solution  of  ques- 
tions in  the  Far  East.  After  all,  in  the  final  analysis, 
the  situation  is  financial,  and  if  these  ordinary,  funda- 
mental rules,  that  have  always  unerringly  controlled 
business  and  financial  affairs,  still  hold  true,  the  solu- 
tion is  inevitable  and  certain. 

The  financial  phase  of  the  question  is  easily  under- 
stood and  the  information  is  accessible.  Patience  and 
industry  only  are  needed  to  assemble  the  facts;  and, 
when  assembled,  the  every-day  business  man  is  just  as 

5 


good  a  judge  of  what  must  happen  as  the  wisest  states- 
man, or  the  wiliest  diplomat. 

It  is  conceded  that  the  disturbing  element  in  the 
Far  East  is  Japan;  whether  for  good  or  for  bad,  need 
not  be  decided,  or  even  questioned,  until  after  we 
ascertain  just  what  Japan's  own  status  is.  In  fact, 
whether  it  is  for  good  or  bad,  will  be  determined  in 
the  process. 

I. 

In  ordinary  affairs,  the  Banker  asks  the  Wholesaler 
applying  for  a  loan,  and  the  credit  man  for  the  whole- 
sale house  asks  the  retailer  applying  for  a  line  of  credit; 
what  business,  if  any,  he  is  engaged  in,  outside  of  his 
regular  business. 

If  it  develops  that  he  is  engaged  in  outside  busi- 
ness; that  he  is  using  borrowed  capital  for  the  purpose, 
and  that  the  outside  business  is  being  conducted  at  a 
loss,  he  will  be  denied  credit  until  he  liquidates  his 
outside  interests  and  gets  back  to  his  regular  business. 

Japan  is  just  exactly  in  that  position.  Her  regular 
business  is  to  operate  Japan.  She  has  engaged  in  out- 
side undertakings,  and  has  borrowed  outside  of  her 
own  nationals,  not  only  an  amount  representing  the  full 
value  of  those  outside  undertakings,  but  an  amount 
representing  twice  their  value;  and  when  the  over- 
head expense  of  policing  and  military  protection  for 
those  outside  undertakings  is  considered,  they  are 
being  operated  at  a  loss  of  over  100%. 

The  average  business  man  and  the  Banker,  con- 
sidering matters  of  this  kind,  insist  upon  having  the 
exact  figures  before  them;  accordingly,  1  have  compiled 
the  following  Schedules  from  Japanese  statistics, 
arranged  with  special  reference  to  this  phase  of  the 
question: 


JAPANESE  LOANS  AND  INVESTMENTS  OUTSIDE 
OF  JAPAN 

Borrowed  by  Japan  Outside 

Foreign  Loans  now  held  in  England,  France. 
Italy,  Belgium,  Holland  and  the  United 
States $669,396,905.00 

Add  South  Manchuria  Railway  Loan,  guaran- 
teed by  the  Imperial  Government  of 
Japan 60,000,000.00 

$729,396,905.00 

Deduct  War  securities  of  above  countries  ab- 
sorbed in  Japan,  during  the  World  War.        171,263,445.00 

Total $558,133,460.00 

Undertakings  Outside  of  Japan 

In  Korea,  as  per  details  in 
separate  schedule  fol- 
lowing         $1  1.835,765.00 

In  Manchuria,  as  per  details 
in  separate  schedule  fol- 
lowing         106,884,792.00 

In  Mongolia,  as  per  details 
in  separate  schedule  fol- 
lowing          23.800,000.00 

In  China  proper,  as  per  de- 
tails in  separate  sched- 
ule  following    150,330.000.00 

Total $292,850,557.00 

EXCESS    OF    MONEY   BORROWED    OVER 

MONEY  INVESTED $265,282,903.00 

SCHEDULE  "A" 

Japanese  Investment  in  Korea 

Railways,  including  Trams $38,848,123.00 

Oriental  Development  Company 3,500,000.00 

Lumber,  Mines,  Salt  Works  and  other  Indus- 
trials    1,610, 1 24.00 

Water  Works 3,472,996.00 

Roads,  Bridges,  Harbors  and  other  Municipals  22,712,392.00 

Total    $70,143,635.00 

Credit  Korea  with  excess  collected  in  taxes  by 
Japan,  and  share  of  Korean  Government 
in  dividends  of  Oriental  Development 
Company,  Railroads,  etc..  Ginseng 
Profits  and  National  Forests  confiscated.  58,307,870.00 

TOTAL  NET  INVESTMENT  IN  KOREA $  11, 835, 765. 00 

7 


SCHEDULE  "B" 
Japanese  Investment  in  Manchuria 

South  Manchuria  Railway  for  Railway  proper      $35,199,905.00 

Industrials,  Utilities,  Collieries,  Harbors, 
Hotels,  Farms  and  Buildings  owned  by 
Railway    28,376,837.00 

Kirin  Forestry  Undertaking I  5.000,000.00 

Forestry  Undertakings  by  Okura  Kumei.  .  .  .  15.000.000.00 

Penshi  Iron  Mines 2.500,000.00 

Loan    to    Fengtien    Province     (Unrecognized 

by   China)     2,500,000.00 

Loan  to  China  for  Kirin — Chang-chun  Rail- 
way      3,458.050.00 

Loan    to    China    for   Mongolian    extension...  4.850.000.00 


TOTAL  INVESTMENT  IN  MANCHURIA.  .  .    $106,884,792.00 

SCHEDULE  "C" 
Japanese  Investments  in  Mongolia 
Loan   to  China   for   Manchuria   and   Mongolia 
Railway,  connections  into  Manchuria  and 
China.      In  reality  feeder  for  South  Man- 
churia Railway,   owned  by  Japan $23,800,000.00 

SCHEDULE  "D" 
Japanese  Investments  in  China  Proper 

Boxer    Indemnity     $23,200,000.00 

Railway  Loans 

Nanchang    Hne    $    1.150,000.00 

Shantung     (not     recog- 
nized)           23,000.000.00 

Mukden  Hne 1  55,000.00 

Kiukiang   Hne    2.452,000.00 

Ki      Hwei      Ry.       (not 

recognized)      10,000,000.00 

Peking   Sui   Yuan 2,000.000.00 


General  Loans 

1915.    Central    Govern- 
ment      250.000.00 

1917,  Central    Govern- 
ment      2.500.000.00 

1918,  Central    Govern- 
ment      4,850,000.00 

Printing   Bureau    1.000,000.00 

Yarn   Purchase    500,000.00 

Tai-hei  Kumei  syndicate  7,000.000.00 

Telegraphs     10,000,000.00 

Bank     of     Communica- 
tion       10.000.000.00 

Wireless     1.500,000.00 

Military     1 0.000,000.00 

2nd    Re-organization...  9,700,000.00 

Grand  Canal 2,500,000.00 


38,730.000.00 


59.800.000.00 


Provincial 

Kuangtung    Province . 

2,550.000.00 

Shantung 

750,000.00 

Hunan 

1,000,000.00 

Fukien 

1.000,000.00 

Chihli 

500.000.00 

Shensi 

1,000,000.00 

Hupeh 

500.000.00 

7,300,000.00 

ndustrials 

Hankow  Paper  Mill    . 

1,000,000.00 

Hankow    Hydraulic 

500,000.00 

Tientsin  Spinning    .  .  . 

300,000.00 

Kiangsu  Iron  Mines    . 

1.500.000.00 

Han  Yeh  Ping  Iron  Co 

.      15.500.000.00 

Peking  Telephone   .  .  . 

2.500,000.00 

21.300,000.00 

TOTAL  INVESTMENTS  IN  CHINA $150,330,000.00 

Note: — $87,830,000  of  above  loans  and  investments  are 
not  recognized  by  China  because  not  made  with  approval  of 
the  Central  Government.  Total  foreign  loans  and  investments 
of  all  countries  in  China,  including  "Unrecognized"  loans  by 
Japan,  is  $1,061,938,437. 

The  foregoing  schedules  show  that  Japan  has 
expended  $558,133,460  of  "Borrowed"  money,  and 
only  has  $292,850,557,  in  actual  value  to  show  for  it. 
There  has  been  an  economic  loss,  some  where  of 
$265,282,903.  Either  her  own  business,  of  operating 
Japan,  is  running  at  a  loss,  or  there  has  been  that 
much  overhead  in  operating  her  outside  undertakings. 
No  self  respecting  Japanese  will  admit  that  they  have 
been  obliged  to  borrow  money  outside  to  sustain  their 
own  country,  and  so  the  loss  is  conceded  to  be  in  the 
outside  undertakings. 

It  is  a  plain  case  of  attempted  domination  and 
control  by  Japan  in  these  outside  countries,  and  such 
things,  whether  usurping  and  selfish,  or  whether  altruis- 
tic, cost  money. 

The  only  difference  is  that  the  usurping  and  selfish 
kind  faces  mass-anger  and  resentment  that  must  be 
met  by  force  and  oppression,  with  attendant  atrocity, 
brutality  and  injustice,  all  high  priced  commodities  in  a 

9 


money  as  well  as  a  moral  sense,  and  such  a  course 
costs  more. 

Large  forces  of  armed  soldiers,  gendarmes  and 
police,  and  patroling  navies,  are  expensive.  Hired 
executioners,  floggers,  assassins,  and  other  supernumer- 
ary punishers  and  oppressors,  must  be  well  paid.  It 
costs  money  to  build  and  maintain  jails  well  filled  with 
prisoners,  and  where  the  prisoners  are  political,  charged 
with  no  crime  except  love  of  freedom  and  their  country, 
the  activities  of  their  relatives  and  friends  particularly, 
and  of  sympathizers,  are  bound  to  be  doubled  and 
trebled,  so  that  the  cost  increases  with  mathematical 
progression  in  an  endless  chain. 

Then  there  are  the  questionable  expenses  that 
always  attach  themselves  to  such  a  policy.  Corruption 
and  dishonesty  thrive  in  such  an  atmosphere,  and  wipe 
their  slimy  trail  over  all,  searching  for  money. 

The  usurping  selfish  policy  requires  well  organized 
spy  systems,  with  high  paid  executives  and  operatives, 
and  a  rigorous  censorship  must  be  maintained  at  all 
costs,  for  the  World  must  not  know  what  is  going  on. 
Its  ostracism  would  be  disastrous,  and  is  a  matter  to 
be  reckoned  with.  Yet,  how  futile  it  all  is.  A  dead 
loss — for  the  World  will  know  and  must  know 
eventually. 

Japan  is  attempting  just  such  a  policy  in  the  Far 
East,  and  is  operating  on  "Borrowed  Capital."  For  the 
benefit  of  the  every-day  business  man  and  the  Banker, 
let  me  emphasize — "Borrowed  Capital."  She  has 
seized  Korea,  the  three  provinces  of  Manchuria,  and 
three  Provinces  in  China  proper — Shantung,  Fukien 
and  Hupeh;  an  area  of  over  600,000  square  miles,  five 
times  as  large  as  Japan;  with  a  population  of  over 
100,000,000,  twice  her  own  population;  and  with 
natural  resources  at  least  eight  times  her  own. 

Japan  must  protect  herself  in  this  vast  territory 
against  the  intense,  active  hatred  of  an  overwhelming 
horde.      She  must  prevent  that  portion   of  China,   as 

10 


yet  unoccupied,  with  her  teeming  millions,  from  coming 
to  the  aid  of  her  oppressed  citizens  in  the  occupied 
territory;  and  she  must  prevent  Siberia  on  the  north 
from  being  occupied  by  an  antagonistic  Power,  to  the 
extent  of  herself  occupying  and  policing  Siberia,  if 
necessary,  thus  doubling  or  trebling  the  cost. 

Let  me  emphasize  again — every  dollar  that  Japem 
has  spent  in  this  policy,  and  every  dollar  that  she  has 
invested  in  this  vast  territory,  and  every  dollar  that 
she  will  spend  and  will  invest  in  the  future,  has  been 
and  must  be  "Borrowed  Money." 

The  question  is,  how  long  can  Japan  stand  the 
expense?  How  long  can  she  continue  to  operate  at  a 
loss  and  retain  her  credit?  A  halt  will  surely  be  called 
when  Japan's  creditors  become  conscious  of  how  she 
is  using  their  money,  irrespective  of  that  inevita- 
ble law  of  finance  that  you  cannot  borrow  money 
indefinitely  to  conduct  any  underteiking  at  a  loss.  When 
Japan  has  spent  herself,  and  it  looks  as  though  she 
had  already  done  so,  the  whole  turmoil  must  necessarily 
settle  down  in  the  Far  East,  to  each  Nation  minding  its 
own  business  and  governing  itself  according  to  the 
will  of  its  own  people;  Japan  included,  which  means 
an  end  to  her  autocracy. 

This  can  be  done.  China  and  Korea  governed 
themselves  for  over  forty  centuries.  It  is  a  question  as 
to  which  is  the  oldest  nation  in  the  World,  and  as  to 
which  has  given  to  the  World  the  most  in  fundamental 
arts  and  inventions.  We  may  criticize  their  former 
manner  of  government,  and  may  not  approve  of  J:heir 
customs,  their  habits,  and  even  their  style  of  dress. 
The  Chinese  queue  and  the  Korean  top  knot  may  seem 
to  be  unnecessary  appendages;  but  it  is  all  none  of 
our  business.  Their  government,  their  customs  and 
their  manners  are  their  own,  and  no  doubt  they  love 
them  and  cherish  them,  as  we  do  ours. 

In  any  event,  both  Korea  and  China  have  made 
their  best  bid   for  our  esteem,   by  both  adopting  the 

II 


republican  form  of  Government  and  declaring  against 
autocracy.  The  World  is  due  to  welcome  them  back 
as  free  nations.      It  is  inevitable. 

Japan  claiming  the  right,  as  she  does,  to  control 
and  dominate  the  destinies  of  the  Far  East,  it  is  fair 
to  analyze  her  own  conditions,  and  what  foundation 
there  is  for  her  clcums. 

She  cannot  dominate  because  of  her  size,  for 
she  only  has  1  47,000  square  miles  out  of  the  3,400,000 
square  miles  she  seeks  to  dominate.  She  ought  not  to 
control  because  of  her  population,  for  she  only  has 
5  7,000,000  out  of  32  7,000,000.  She  cannot  control 
because  of  superior  intelligence  and  education,  because 
there  are  probably  not  over  20,000,000  people  in 
Japan  who  have  a  real  education,  as  against  four  times 
as  many  on  the  main  land  of  Asia.  Trade  and  Com- 
merce do  not  give  her  precedence,  because  the  trade, 
commerce  and  productions  of  the  Asia  main  land,  far 
exceed  those  of  Japan.  It  is  not  a  question  of  natural 
resources,  for  the  resources  of  Korea  and  Manchuria 
alone,  without  reference  to  the  vast  resources  of  China 
proper,  are  double  the  natural  resources  of  Japan.  It 
is  not  a  question  of  better  credit  with  other  Powers, 
for  China  has  a  line  of  credit  and  loans  with  other 
Powers,  nearly  twice  as  large  as  that  of  Japan. 

If  Japan  cannot  dominate  for  any  of  these  reasons, 
then  she  is  driven  to  say,  that  she  must  dominate  for 
some  selfish  reason,  and  this  leads  us  to  consider  a 
second  condition. 

11. 

In  ordinary  business  affairs  the  applicant  for 
credit  might  say  to  his  Banker  or  to  his  wholesaler: 
"The  exigencies  of  my  regular  business  have  driven  me 
into  these  outside  enterprises.  1  am  a  printer,  for 
instance,  and  print  paper  is  costing  too  much,  and  I 
have  been  obliged  to  go  into  the  manufacture  of  paper 
on  my  own  account;  or  I  am  a  hotel  man  and  farm 

12 


products  are  too  high,  and  I  had  to  buy  a  farm  and 
raise  my  own  produce." 

Even  then,  he  would  face  the  same  old  question 
of  whether  the  ultimate  cost  of  his  print  paper,  or  his 
farm  produce,  considering  his  overhead,  was  not 
greater  than  before,  and  nine  times  out  of  ten,  it  would 
be  proven  that  it  was. 

So  it  is  with  Japan.  Even  if  she  does  think  and 
claim  that  there  is  a  necessity  for  more  territory  and 
more  natural  resources  for  her  increasing  population, 
the  $265,000,000  that  she  has  lost  in  her  operations 
in  Korea  and  China,  and  the  $400,000,000  that  she 
has  just  spent  in  Siberia,  according  to  her  own  state- 
ments, a  total  of  $665,000,000,  would  supply  at  least 
one-third  of  her  population  with  all  of  the  necessities 
of  life,  or  would  pay  the  ordinary  items  of  her  annual 
budget. 

But  let  us  look  at  this  supposed  necessity  for 
expansion  into  Asia,  urged  by  Japan.  At  about  the 
same  time  that  this  policy  was  inaugurated,  Australia 
had  passed  certain  laws  restricting  Japanese  immigra- 
tion, and  the  matter  was  the  subject  of  interchange  of 
diplomatic  notes,  and  this  is  what  the  Japanese  Foreign 
Office,  familiar  with  all  of  the  facts,  said  at  that  time 
in  a  note,  dated  September   11,    1901  : 

"An  impression  seems  to  exist  in  some  quarters,  and  to 
"find  voice  in  certain  sections  of  the  Australian  press, 
"that  Australia  is  in  danger  of  an  influx  of  Japanese 
"immigrants.  I  have  already  endeavored  to  show  that 
"this  impression  is  altogether  erroneous." 

The  prior  note  to  which  the  Japanese  Foreign 
Minister  alludes  contained  this  statement: 

"As  Japan  is  under  no  necessity  to  find  outlet  for  her 
"population  my  government  v^rould  readily  consent  to 
"any  arrangement  by  which  all  that  Australia  seeks, 
"so  far  as  the  Japanese  are  concerned,  would  be  at 
"once    conceded." 

We  must,  and  we  do  give  all  faith  and  credit  to 
the  veracity  and  sincerity  of  the  Japanese  Foreign 
Minister  in  making  these  statements  to  the  effect  that 

13 


Japan   is   under   no   necessity   to    find    outlet    for   her 
population. 

This  is  the  real  inside  opinion  of  official  Japan 
and  the  average  Japanese  citizen  is  evidently  of  the 
same  mind,  at  least  so  far  as  Asia  is  concerned.  Japan 
prides  herself  upon  keeping  an  accurate  account  of  her 
residents  abroad.  The  total  given  in  the  last  Japan 
Year  Book  of  1920  is  376,780,  of  which  nearly  two- 
thirds,  221,463,  reside  in  the  United  States.  The 
private  Japanese  citizens  do  not  flock  to  the  Asiatic 
countries  that  Japan  seeks  to  dominate  and  exploit 
for  their  benefit;  rather,  they  prefer  other  countries,  so 
that  expansion  into  Asia,  affords  no  practical  relief 
for  Japan's  over  population,  because  her  citizens  will 
not  emigate  to  a  country  that  is  already  over  populated. 

Japan  is  no  doubt  facing  the  same  difficulty,  in 
a  measure,  that  we  have  in  America.  There  is  the 
same  crowding  into  cities  and  abandoning  the  country, 
and  the  same  tendency  to  avoid  the  development  of 
natural  resources  by  agriculture,  mining,  etc.  I  dare 
say  that  in  northern  Japan  and  Saghalin  Island,  there 
is  the  same  undeveloped  space  that  we  have  in  the 
West  and  the  South,  and  that  the  abandoned  farms 
of  New  England  and  the  East  have  their  counterpart 
in  Japan.  Certainly  she  is  no  worse  off,  with  respect 
to  over  population,  than  many  European  countries. 

Japan  has  protected  herself  from  immigration, 
properly  enough,  by  adopting  laws  even  more  restric- 
tive than  the  laws  of  California,  Australia  or  Canada 
against  Japanese  immigration.  She  has  followed  our 
example  and  our  remedy,  to  face  the  same  difficulty. 
We  do  not  complain,  and  certainly  she  is  not  in  a  posi- 
tion to.  What  is  fair  for  us,  is  fair  for  her,  and  vice 
versa.  It  is  plain  that  safety  for  present  and  future 
Japan,  lies  in  her  own  development,  and  not  in  expan- 
sion into  outside  undertakings,  and  that  the  inevitable 
rules  of  finance  and  credit  w^ill  force  that  policy. 

14 


III. 

In  our  ordinary  affairs,  the  Banker  or  the  credit 
man  for  the  wholesale  house,  finding  that  the  applicant 
for  credit  has  already  submerged  himself  in  outside 
undertakings,  might  from  personal  considerations  for 
the  welfare  of  the  applicant,  make  further  inquiry  into 
his  exact  status. 

The  applicant's  condition  would  be  considered 
hopeless,  however,  if  it  should  develop  that  he  has 
co-investors  and  co-creditors  in  his  outside  business; 
that  his  nominal  interest  is  only  about  14%  of  the 
whole;  that  he  is  in  fact  a  creditor  of  his  co-investors 
for  twice  the  amount  of  his  investment,  and  that  he 
has  taken  the  advantage  of  his  co-investors,  and  seeks 
an  unlawful  preference,  by  seizing  and  attempting  to 
control  99%  of  the  security  and  property  of  the  joint 
undertaking. 

He  is  surely  going  to  face  dissension  and  with- 
drawal of  his  own  credit  and  financial  ostracism,  the 
moment  his  co-investors  become  conscious  of  all  that 
he  is  doing,  and  he  will  be  compelled  to  liquidate,  and 
at  a  great  loss. 

Japan's  situation  is  just  that.  China  owes  the 
world,  outside  of  her  own  nationals,  according  to 
her  last  statement,  ending  with  the  year  1918,  the 
following : 

War  Loans.   Japanese  War    1896    $156,535,565.00 

Boxer  Indemnities    301,776,090.00 

Railway    Loans     212,71 5.602.00 

General  Loans 240,58  1 . 1  80.00 

Recognized   Japanese   Loans    62,500,000.00 

Total $974,108,437.00 

If  we  add  to  that  the  so-called  "Unrecognized" 
Japanese  loans  of  $87,830,000,  reported  by  Japan, 
but  contested  by  China,  we  have  a  total  of 
$1,061,938,437. 

Incidentally,  these  "Unrecognized  Loans"  present 
another   difficulty  and   bone  of  contention,    that  may 

15 


result  in  loss  to  Japan  and  probably  will,  in  whole  or 
in  part.  They  represent  loans  made  to  Provinces  of 
China,  without  the  approval  of  the  Central  Govern- 
ment, or  to  industrials  for  which  the  Central  Govern- 
ment has  not  in  every  case  granted  concessions. 

It  is  claimed  in  China,  that  in  many  instances, 
Japan  has  made  loans  to  Military  Governors  of  differ- 
ent Provinces,  that  have  been  used  to  foment  opposi- 
tion, and  in  some  cases  actual  revolt,  against  the 
Central  Government.  Of  course,  such  loans  are  not 
going  to  be  collected,  except  by  force.  Other  "Un- 
recognized" loans  have  been  made  to  industrials  to 
exploit  and  devast  the  natural  resources  of  China,  with 
no  return  to  China,  and  all  such  loans  fall  in  the  same 
category,  as  to  collectibility,  with  loans  made  to  incite 
or  promote  rebellion. 

The  securities  of  China,  held  in  Japan,  and 
Japan's  investments  in  China,  as  per  schedule  already 
set  out,  total  $150,330,000,  which  is  14%  of  the  total 
of  $1,061,938,437,  including  Japan's  contested  claims 
and  loans.  The  uncontested  loans  and  claims  only 
represent  about  6%. 

All  of  the  balance  of  Chinese  securities,  held  out- 
side of  China,  constituting  at  least  86%  of  the  whole, 
are  held  in  England,  France,  Italy,  Holland,  Belgium 
and  the  United  States,  the  former  holdings  of  Ger- 
many, Austria  and  Russia  having  been  absorbed  in 
War  Indemnities  growing  out  of  the  World  War. 
These  are  the  very  same  countries  to  which  Japan  is 
indebted  $558, 1  33,460,  almost  four  times  her  holdings 
in  China. 

Japan  holding  only  14%  of  the  securities,  and 
those  holdings  only  nominal,  if  she  paid  her  own  debts; 
recognizing  no  principles  of  fair  dealing,  either  with 
debtor  or  co-creditor,  has  seized  600,000  square  miles 
of  territory  in  Korea,  Manchuria,  and  China  proper, 
with  a  population  of  over  100,000,000;  or  over  one- 
fourth    of   the   wealth    and    natural    resources   of   Asia, 

16 


and  with  2,700  miles  out  of  4,500  miles  of  the  east 
frontage  of  China. 

Japan's  co-investors  in  China,  holding  at  least  86% 
of  the  securities,  as  against  Japan's  14%,  for  which 
they  also  furnished  Japan  the  money,  have  possession 
of  Hong  Kong,  Kuangchouwan,  and  Wei  Hai  Wei, 
mere  spots  on  the  map,  with  a  total  area  of  795 
square  miles  and  a  population  of  752,000,  and  with 
less  than  1  00  miles  of  China's  eastern  frontage,  which 
is  a  great  deal  less  than  1  %  of  the  security  seized  by 
Japan. 

Japan  has  treated  China  as  though  she  were  a 
failing  debtor,  without  any  reference  to  her  inher- 
ent rights  as  a  debtor  or  her  dignity  as  a  Nation.  One 
would  say  that  China  with  her  vast  wealth,  resources 
and  population  was  a  good  enough  debtor  without 
security.  At  least  the  financiers  of  the  United  States 
have  thought  so,  for  the  United  States  has  no  con- 
cessions or  holdings  of  territory,  of  any  kind,  as  secur- 
ity for  its  holdings  in  China. 

When  China  wakes  up,  and  when  the  creditors 
of  Japan  wake  up,  including  our  own  dear  old  United 
States,  something  is  bound  to  happen;  and  the  least 
that  can  happen  is  that  Japan,  facing  economic  and 
financial  ostracism,  will  be  forced  to  liquidate  her 
interests  in  Korea,  Manchuria  and  China  and  get  out. 

IV. 

Let  us  still  assume  the  position  of  Japan  as! 
analogous  to  that  of  the  individual  in  every-day  life, 
applying  to  his  Banker  for  a  loan  or  a  line  of  credit, 
which  is  exactly  Japan's  attitude  in  the  world  today. 
In  such  a  case,  Mr.  Japan  would  reluctantly  consent 
to  liquidate  his  outside  interests  and  to  confine  him- 
self to  his  own  business  of  operating  Japan,  and  then 
would  turn  to  his  own  country  and  its  resources,  as  a 
basis  for  a  line  of  credit. 

Mr.    Banker  would   say:     "Now  you   are   getting 

17 


down  to  business  and  I  would  be  inclined  to  extend 
you  a  line  of  credit  on  that  basis,  if  it  w^ere  not  for 
one  thing.  Your  government  is  an  autocracy  and 
there  is  bound  to  be  discontent  where  people  are  gov- 
erned against  their  will,  or  without  their  will.  I 
cannot  run  the  risk  of  revolts  and  repudiation,  and  of 
what  is  equally  as  dangerous  to  the  safety  of  invest- 
ments, the  economic  waste  and  poverty  that  follows 
in  the  wake  of  revolution." 

Mr.  Japan  would  reply:  "But  Japan  is  only  nomi- 
nally an  autocracy,  we  have  a  Diet,  and  in  fact  a 
representative  form  of  Government."  The  Banker 
would  say:  "My  understanding  is  the  other  way 
around,  you  have  a  nominal  representative  form  of 
government  and  an  actual  autocracy.  However,  there 
cam  be  no  misunderstanding  between  us  on  that  score. 
I  have  here  Ito's  Commentaries  on  the  Constitution  of 
Japan.  Your  Constitution  reads,  referring  to  such 
articles  as  are  apropos: 

PREAMBLE 

We  hereby  promulgate  this  law  of  State,  to  which  our 
descendants  and  our  subjects  and  their  descendants  are  to  for- 
ever conform. 

The  rights  of  sovereignty  we  have  inherited  and  we  shall 
bequeath  them   to  our  descendants. 

When,  in  the  future,  it  may  be  necessary  to  amend  any 
of  the  provisions  of  this  constitution,  we  or  our  successors, 
shall  assume  the  initiative  right  to  amend,  and  in  nowise  shall 
our  subjects  be  permitted  to  attempt  any  alteration  thereof. 

ARTICLE  1 
The  Empire  of  Japan  shall  be   reigned  over  and  governed 
by  a  line  of  Emperors,   unbroken  for  ages  eternal. 

ARTICLE  3 
The  Emperor  is  sacred  and  inviolable. 

ARTICLE  4 
The    Emperor    is    the    head    of    the    Empire,    combining    in 
himself  the   rights  of  sovereignty  and  the  exercise  of  them. 

ARTICLE  5 
The  Emperor  gives  sanction  to  laws  and  orders  them  to  be 
promulgated  and  executed. 

ARTICLE  7 
The    Emperor    convenes    the    Imperial    Diet;    opens,    closes 
and  prorogues  it  and  dissolves  the  House  of  Representatives. 

18 


ARTICLE  10 

The  Emperor  determines  the  organization  of  the  different 
Branches  of  the  Administration  and  the  salaries  of  all  civil 
and  military  officers,  and  appoints  and  dismisses  the  same. 

ARTICLES   1  1   AND   1 2 
The    Emperor    has    supreme    command    of    the    Army    and 
Navy  and  determines  the  organization  and  standing  of  the  same. 

ARTICLE  13 
The   Emperor   declares   War,    makes   Peace  and    concludes 
Treaties. 

ARTICLE  14 
The    Emperor    orders    amnesty,    pardon,    commutation    of 
punishment  and   rehabilitation. 

ARTICLE  34 
The  House  of  Peers  shall  be  composed  of  the  Royal  Family, 
Nobles  and  persons  nominated  by  the  Emperor. 

ARTICLE  64 

The  expenses  of  the  Imperial  House,  as  now  fixed,  shall 
be  paid  out  of  the  national  Treasury  and  shall  not  require  tho 
consent  of  the  Diet. 

ARTICLES  70  AND  71 
Provide  that  when  the  Imperial  Diet  cannot  be  convened 
the  government  may  take  necessary  financial  measures  by  means 
of  an  Imperial  Ordinance,  and  that  if  the  Diet  should  fail  to 
pass  the  Budget,  the  budget  of  the  previous  year  shall  remain 
in  force. 

The  Banker,  after  finishing  his  reading  of  the 
Constitution,  would  necessarily  say:  "I  am  convinced 
that  Japan  is  actually  an  autocracy,  and  only  nominally 
a  representative  government.  I  cannot  conceive  of  a 
single  thing  that  the  Emperor  cannot  either  directly 
or  indirectly  order  done,  or  prohibit  to  be  done,  at 
will.  The  Constitution  is  binding  forever  and  cannot 
be  amended  except  upon  the  initiative  of  the  Emperor. 
No  law  can  pass  the  Diet  without  passing  the  House 
of  Peers,  composed  of  members  of  the  royal  family  and 
members  appointed  by  the  Emperor.  None  of  them 
are  elected  or  are  representative  in  any  sense.  Even 
if  a  law^  should  pass,  the  Emperor  has  absolute  veto 
power,  from  which  there  is  no  appeal  or  redress.  He 
can  convene  or  dismiss  the  Diet  at  will,  to  say  nothing 
of  his  retained  right  to  determine  the  organization 
and  standing  of  the  Army  and  Navy,  and  the  right  to 

19 


declare  War  and  make  Peace  and  Treaties  at  will, 
without  reference  to  the  Diet.  We  could  not  extend  a 
credit  where  so  much  depends  upon  the  will  and  per- 
haps the  caprice  of  one  man,  selected  by  nature,  and 
not  by  his  countrymen." 

CONCLUSION 

In  the  final  analysis,  if  Japan  were  an  individual, 
it  could  not  obtain  a  loan  or  a  line  of  credit,  accord- 
ing to  known  rules  of  finance  and  banking,  without 
liquidating  and  abandoning  its  outside  undertakings, 
and  without  changing  its  own  form  of  government,  or 
management  of  its  affairs. 

Japan  faces  economic  and  financial  ostracism  that 
will  prevent  her  from  borrowing.  Her  outside  under- 
takings and  policy  of  expansion  cannot  be  conducted 
without  loss,  taking  into  consideration  the  enormous 
overhead  necessary  to  maintain  them.  The  question 
resolves  itself  into  whether  Japan  can  stand  the  drain, 
without  credit.  That  she  has  been  obliged,  up  to  this 
time,  to  borrow  money  outside  of  her  own  resources 
and  nationals,  is  sufficient  evidence  of  the  fact  that 
she  is  driven  to  that  last  expedient.  Neither  a  Nation 
nor  an  individual  can  continue  to  borrow  indefinitely 
to  conduct  any  undertaking  that  is  being  operated  at 
a  loss. 

It  is  inevitable  that  Japan  must  get  out  of  China 
and  that  she  must  give  back  to  Korea  her  independ- 
ence, because  she  is  operating  in  both  countries  at  a 
loss,  on  "Borrowed  Money." 

The  past  financial  methods  of  Japan  preclude  her 
from  further  credit.  European  countries  cannot  loan 
her,  if  they  would,  and  certainly  the  United  States  will 
not  loan  money  to  an  autocracy,  w^ith  w^hich  to  oppress 
and  annihilate  sister  Republics  like  Korea  and  China. 


20 


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